Question

On January 1, Year 2, Ballard Company spent $17,000 on an asset to improve its quality....

On January 1, Year 2, Ballard Company spent $17,000 on an asset to improve its quality. The asset had been purchased on January 1, Year 1, for $48,000. The asset had a $10,800 salvage value and a 6-year life. Ballard uses straight-line depreciation. What would be the book value of the asset on January 1, Year 5? Select one: A. $30,000. B. $9600. C. $19,200. D. $18,600.

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Answer #1
Depreciation for year 1 = ( Cost - Salvage ) / Useful life = ( 48000 - 10800 ) / 6 = 6200
Book value on January 1, Year 2 = Cost - Depreciation for year 1 + Amount spent to improve quality = 48000 - 6200 + 17000 = 58800
Depreciation per year from year 2 = ( Book value on January 1, Year 2 - Salvage ) / Remaining Useful life = ( 58800 - 10800 ) / 5 = 9600
Book value on January 1, Year 5 = Book value on January 1, Year 2 - ( Depreciation per year from year 2 * 3 ) = 58800 - (9600*3) = 30000 Option A
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